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Stock Analysis - Canadian National Railway (CNR/CNI)

Initial Screening

Over the last 10-15 years, investors of blue-chip industrial sector stock Canadian National Railway Company (short: CN Rail) have been rewarded with a 14.28-15.77% annual return. The 2nd largest of its peers with a market cap of over 61 billion USD, CN Rail’s direct competition includes the Canadian Pacific Railway, Union Pacific Corporation, and CSX Corporation.

Though any financial figures quoted throughout this article will be referenced in USD, CN Rail is traded on both the Toronto Stock Exchange (Ticker: CNR) and the New York Stock Exchange (Ticker: CNI). This dual-listing allows convenient access to the stock for both US and Canadian based investors.

cn rail infographic

Business Model

As one of the backbones of the industrial industry in North America, CN Rail focuses on enabling businesses by providing transportation services. Their infrastructure spans over Canada and the US connecting the Pacific Ocean, Atlantic Ocean, and the Gulf of Mexico with over 32000 km of track.

Its diversified portfolio of customers reached and commodities transported, allows for exposure to cyclical and non-cyclical industries ranging from automotive to natural resources and everything in between. With Railroads being the most secure method of transportation for hazardous goods, CN Rail is well equipped to continue facilitating the safe and secure transport of various chemicals and petroleum.

Dividend Growth and Sustainability

CN Rail’s dividend yield as of 6/28/2020 is 1.95%. While this yield does not seem very attractive at first glance, I think their history and dividend safety makes for a sensible investment for dividend growth investors. The following will cover some of this history and judge the sustainability of the dividend by examining the payout ratio.

Dividend History & Growth

Considered a Dividend Aristocrat, CN Rail introduced a dividend in 1996 and has grown it every year since. That’s a 25-year streak of dividend growth paid out quarterly with an increase to be expected in the first quarter of every year.

Shareholders saw a 113% increase in dividend per common share between 2010 and 2020 fueled by an outstanding dividend growth of > 11% p.a. The latest dividend increase was announced on January 28 2020 at 7%.

Payout Ratio

Between 2013 and 2019 CN Rail had a dividend payout ratio between 22% and 40%. This leads me to the conclusion that the company pays out a considerably recession-proof/sustainable dividend with room for dividend growth in future years.


Instead of using a SWOT matrix to outline the company's strengths and weaknesses as I have done in the past, I decided moving forward to use a different analysis technique. We will dive into the company's Moat as well as Bull and Bear cases to outline which headwind the company might face while providing insight into their strategy and growth opportunities.


So what puts CN Rail at a competitive advantage over its peers? First off: there isn’t a whole lot of new competition. The North American Railroad market has high entry barriers especially in terms of infrastructure investments and CN Rail is the biggest Canadian Railroad company as well as the only company which offers a transcontinental infrastructure to Canada.

Adding to this, acquisitions south of the Border, such as Illinois Central in the late 90s, have led to significant infrastructure capacity in the US ultimately connecting to a railway system that spans over 32,000 km leading to 3-coast access.

To cap off their competitive advantage, CN Rail is currently regarded as the fuel and emission efficiency leader in the industry aligning the company with global roadmaps to reduce emissions.

The Bull Case

With trucking weighing heavily on public infrastructure, freight transportation can be used to relieve roads of their congestion, which is definitely a plus in my books. On top of that, CN Rail’s optimized railroad scheduling, pioneered by the company over 15 years ago, ultimately means they plan to operate as efficiently as possible, using less fuel by making the most of their extensive infrastructure. They also maintain quality control of their tracks through the use of automated track inspection cars.

On top of all of this innovation, their financial track record is something that should also catch your eye. Equipped with the best credit rating compared to its competitors and a strong balance sheet, CN Rail could weather a potential storm their competition might now and continue to maintain growth through M&A.

The Bear Case

Cost control has proven to be a huge factor during this pandemic when it comes to which businesses will make it through to the other side. With the economy preparing for another potential downturn amidst a second wave, CN Rail must continue to prepare its business for long term success. A shrinking demand would lead to less revenue, while the expensive maintenance of the railroad networks will stay the same.

Though CEO JJ Ruest suggests that June could be flat, CN Rail revenue ton-miles have fallen year over year for both April and May, down 15% and 21% respectively. While Canada has managed to flatten the curve and slowly reopen the economy, the US is still setting all-new record highs day in and day out. Considering the transborder and US traffic contributes to more than 50% of CN Rail’s total business, I would still consider the pandemic a major threat to business.


With its strong fundamentals from past years as well as potential growth opportunities, CNR has become a staple in the industrial sector of my portfolio. In my opinion, the stock offers a great futuristic outlook and while not providing the most inviting starting yield, its potential growth will be very attractive for dividend growth investors.

Moreover, I think their current position as a leader in fuel efficiency and load growth sets them up for long-term success, while new partnerships and terminals could fuel that growth even further. Though I don’t think CN Rail is out of the COVID-19 waters just yet, I don’t believe the downturns they have faced are detrimental to their long-term successes either.

I recommend potential investors browse through the documents found on CN Rail’s investor relations page, as their outstanding visualizations complement the raw figures and outline potential risks and opportunities in their industry.

Thank you for taking a look through my stock analysis of CNI/CNR. Let me know what you think. I invite you to share any feedback you have to offer to help me improve future research!


I hold a long position in Canadian National Railway (TSE: CNR). This article expresses personal opinions and observations of someone who is not licensed to provide financial advice.

I am not receiving compensation for writing this analysis and have no business relationship with any company whose stock is mentioned in this article other than the long positions I own. Furthermore, I cannot guarantee the accuracy of the financial metrics gathered from 3rd party services like Morningstar and Yahoo Finance.

Post Comments(2)

MyFinancialShape July 26, 2020, 1:53 p.m.

I have always loved railways, it’s just great to travel by train, but only after having invested in Berkshire Hattaway some month ago, I start seeing railways through the eyes of an investor. Strong players have a natural, almost perpetual economic moat. A very capital intense, but incredibly interesting business.

Just-Dividends July 27, 2020, 9:07 p.m.

I can't agree more on that MyFinancialShape. Railroads will have an important part as the backbone of the domestic economy. On top of that railway, travel has enormous potential especially here in Canada, where most of the tracks a solely used for industrial transportation.

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